EMC Corporation (EMC)

EMC (EMC+1%) is reiterating 2014 revenue guidance of $24.575B, and raising 2014 EPS guidance by a penny to $1.91; that roughly matches a consensus of $24.57B and $1.91.

With Elliott Management circling, the company now plans to buy back $3B worth of shares in 2014, up from a prior $2B. $600M was spent on buybacks in Q2, and $390M in Q1.

Not surprisingly, EMC rejects Elliott's call to divest VMware (VMW+1.8%), and uses its earnings slides (.pdf) to point to synergies yielded by a "federation" strategy that involves holding onto VMware and Pivotal.

Information Storage revenue (67% of total) rose 7% Y/Y in Q2 with the help of new products, a turnaround from Q1's 3% drop. High-end storage was still weak, declining 14% to $1.03B ahead of a VMAX refresh. But unified storage and backup/recovery (VNX, Data Domain) +6% to $1.57B, and emerging storage (flash and object storage, scale-out NAS) +52% to $470M. Other storage -6% to $900M.

VMware is moving higher, following an initially muted reaction to its Q2 beat and in-line guidance. CLSA has upgraded shares to Buy, citing the strength of new products and the potential for a spinoff.

VMware (NYSE:VMW) guided on its Q2 CC for its Q3 revenue of $1.48B-$1.52B, in-line with a $1.5B consensus. Full-year revenue guidance has been narrowed to $5.96B-$6.08B from a prior $5.94B-$6.1B; consensus is at $6.02B.

License revenue rose 16% Y/Y in Q2, up from Q1's 15% and near the high end of guidance of $605M-$615M. VMware expects Q3 license revenue of $630M-$645M (+12%-14%), and full-year license revenue of $2.56B-$2.62B (+13%-15%).

Services revenue (driven by past deals) rose 18% in Q2 to $843M. Op. margin fell to 29.4% from 33.5% a year ago.

Cloud management license bookings grew over 30% Y/Y for another quarter, and end-user computing (PC virtualization/AirWatch) rose over 50%. ~50% of ELAs once more included the entire vCloud Suite.

The company also says its much-hyped NSX networking virtualization/SDN platform is now on a $100M+/year run rate, and that its VSAN storage virtualization platform beat internal targets. Judging by total license growth rates, standalone server virtualization revenue is growing relatively slowly.

Though Elliott Management is pushing EMC (EMC+5%) to fully spin off VMware (VMW-2.5%), "management has made it clear its not in the best interest of EMC to do so" as recently as May, notes RBC. The firm considers it more likely EMC will buy out VMware's minority holders.

Nonetheless, RBC thinks Elliott's efforts could propel EMC's shares higher, given the low valuation assigned to EMC ($58B market cap) excluding its VMware stake (market value of $32B). Oppenheimer, for its part, is hoping Elliott will get EMC to return more cash or cut costs.

Among other things, the companies are currently working on Project Mystic, an integrated server/storage appliance that includes VMware's server (vSphere), storage (VSAN), and networking (NSX) virtualization offerings.

Aside from product synergies, there's the fact VMware (expected to post 15%+ sales growth in both 2014 and 2015) continues to grow much faster than EMC's storage ops, which have been pressured by soft high-end demand and the adoption of cloud storage services running on white-label hardware.

VMware (NYSE:VMW) is forming a JV with SoftBank (OTCMKTS:SFTBF) to offer its vCloud Hybrid cloud infrastructure (IaaS) service in Japan. VMware will build and run the service, and SoftBank will provide the data centers and network it runs on. Both companies will offer the service through their sales channels.

Over in China, VMware is partnering with China Telecom (NYSE:CHA) to offer vCloud Hybrid. In this case, China Telecom will operate the service, and VMware will simply provide the underlying software. The arrangement could appeal to Chinese firms hesitant to use a public cloud run by a U.S. company (say, Amazon) following the NSA uproar.

Until now, vCloud Hybrid (launched in 2013) was only available at U.S. and U.K. sites. The service has won praise for the way it lets users jointly manage and quickly migrate public and private cloud workloads, but it continues facing tough competition from Amazon, Microsoft (the hybrid cloud leader), Google, IBM, and Rackspace, among others.

Separately, parent EMC's RSA unit has bought technology assets from Symplified, a provider of cloud identity management services that enable single sign-on and automatic user provisioning for a variety of cloud apps/services. Symplified is shutting down its operations.

EMC/RSA says it will add Symplified's IP to its Identity solutions portfolio. The purchase follows RSA's 2013 acquisition of Aveksa, a provider of tools for managing access to corporate apps and data.

EMC (EMC-1.3%) has acquired TwinStrata, developer of a software platform (called CloudArray) that creates a secure connection between on-premise storage and public cloud storage providers, and allows the resources to be jointly managed. Terms are undisclosed.

EMC has been busy fleshing out its software lineup amid soft hardware sales. Last year, the company rolled out its ViPR storage management software platform, which can handle both EMC and non-EMC systems, and acquired ScaleIO, a developer of software that can pool and manage storage scattered across commodity servers.

Things still look bleak for IBM, which reported a 23% Y/Y Q1 system storage revenue drop: Its external share fell 200 bps to 8.8%, and its total share 180 bps to 10.1%.

The total disk share of non-top-5 vendors rose 370 bps to 28.8%. Chalk that up to both surging demand for cloud storage (getting cheaper by the quarter) running on commodity hardware, and solid momentum for flash/hybrid storage upstarts such as Nimble (NMBL), Pure Storage, and Nutanix.

In addition to announcing the DSSD acquisition, EMC has used the first day of its EMC World conference to unveil a slew of products aimed at the cloud infrastructure providers and flash/hybrid storage startups causing headaches for the company and other established array vendors.

Among them is the Elastic Cloud Storage Appliance, a relatively low-cost solution that (via clustering) can support hyperscale data center architectures (beloved by the likes of Google, Amazon, and Facebook). EMC claims ECS can deliver a 9%-28% lower TCO for object storage deployments than Amazon/Google's public cloud solutions.

EMC has also rolled out the second-gen version of its ViPR storage hardware/data management platform, which drew praise last year on account of its support for non-EMC platforms. ViPR now supports multiple sites and new data management services for commodity storage; the latter is made possible by recently-acquired ScaleIO.

EMC boosts its flash memory offerings with the purchase of privately-held DSSD, Inc. for undisclosed terms. The deal is expected to close this quarter, and is not expected to have a material impact on EPS in fiscal 2014.

Following a Q1 revenue beat, EMC has slightly upped its full-year revenue guidance to $24.575B from a prior $24.5B. But EPS guidance has been lowered by $0.05 to $1.90. The consensus is at $24.51B and $1.94.

Though VMware (VMW)'s license revenue rose 15% Y/Y in Q1 to $561M (beating guidance of $545M-$555M), the company disclosed on its CC license and total bookings growth was less than 10%, with sub-10% bookings growth in all three major geographies. Total bookings had risen at a mid-teens clip in Q4.

Nonetheless, VMware is maintaining its prior forecasts for 2014 revenue of $5.94B-$6.1B (+14%-17%) and license revenue of $2.55B-$2.63B (+12%-16%). AirWatch is expected to contribute $100M.

Q2 revenue, which assumes a $22M contribution from AirWatch, is expected to grow 15%-18% Y/Y to $1.425B-$1.465B (consensus is at $1.44B). License revenue is expected to grow 14%-16% to $605M-$615M.

EMC Corp supports the businesses and service providers to transform information technology (IT) operations to an as a service model (ITaaS). It operates in three segments: EMC Information Infrastructure, Pivotal and VMware Virtual Infrastructure.